Amazon shares had previously been trending higher but it looks like a reversal pattern is about to form. Price appears to be creating the right shoulder of a head and shoulders formation on the 4-hour time frame.
Applying the Fib tool on the latest swing high and low shows that Amazon shares are stalling at the 50% level, which lines up with an area of interest. A higher pullback could last until the 61.8% level or $575 area.
Stochastic is already indicating overbought conditions and is starting to turn lower, hinting at a likely return in selling pressure. In that case, the Fib levels might hold as resistance and push Amazon shares down to the pattern’s neckline around $480. RSI is starting to turn lower as well.
A break below the neckline support could yield a selloff of around $200, which is roughly the same height as the chart formation. Note that the 100 SMA is also crossing below the 200 SMA to suggest that a long-term downtrend is in the cards.
However, some analysts still think that Amazon shares might be a good buy at current levels, even though the stock price is around 20% off the December 2015 highs mostly due to disappointing Q4 earnings data. “In reality, Amazon.com is the best consumer play on earth, as well as a bold bet on the future of cloud computing and the Internet,” says Jeff Reeves of InvestorPlace.
Should these future projects open up more revenues for the company, Amazon shares could still be in for a bounce to the previous highs near $680 or at least until the $500 area in the near term.
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